Why People Don’t Buy Your Offer | Ep 865

What's going on everyone? This is a deep dive into, I wanna say a legal business, but let's just think of it as a service business that also added on education, that also added on software. You might hear this and know what I'm gonna say, but the reality is so many of you are in this boat, you're gonna want to hear this. And so we break down the business with 4 key problems and each of the solutions. And the nice thing is that each of these problems and each of these solutions happen in almost every business. And so enjoy. So this lawyer was losing $100,000 a year, right? So not even— he's making revenue but losing more than he was making because his business model was broken. And so what I want to walk through is how we fixed it and how you can apply the learnings from his business to your business. My name is Alex Hormozi. I run Acquisition.com. It's a portfolio of companies that last year did over $250 million a year in aggregate. And we help businesses just like the one I'm going to walk you through today scale, right? And so let's dive in. So when this attorney came in for our help, he was losing the $100 grand a year, right? And with only 6 months of cash left. And so he had to do something quickly. And he was like, you know, I could, you know, have done nothing and I would just have had zero at the end of the year instead of working all year and being worse off, right? And so that's the painful reality of an unfocused business, right? Working harder can actually leave you further behind if you're running the wrong direction. And this isn't unique, which is why I wanted to make this. Most service businesses fail because they chase shiny objects, right? So think like, I have this business, but I also wanna sell courses about this business, or I wanna also sell, start an agency about this business, or I'm really good at this other part of a business and start another business around that. I don't wanna leave money on the table, right? Before actually mastering their core services. The second issue is that they underprice their true value to avoid tough sales conversations. They're afraid of people saying no and just wanna get more people to say yes. Or you have some of the sort of like mission-driven entrepreneurs who are like, I just wanna make this affordable for everyone, but you're never gonna get anybody to have it because if you don't have any cash flow, you're never gonna grow and you're never gonna help more people, right? So you have to be okay with the fact that you will make money, And you have to make money in order to help more people, period. And the third is this particular business, like many, is they let clients accidentally determine the buying process instead of designing an intentional flow, right? Or a sales motion, as we like to call it. And so let's dive into the numbers. So this business was doing $300,000 top line in the business in terms of revenue. They were losing $100,000 in profit. Again, these numbers are based on what they told me. The 3 business units they had at the time was services, so legal services, education, and software. And so you can see how this probably spun up, right? So this guy's good at his services and said, hey, some people can't afford it, so I give them a DIY version, right? And you know what, the services, if we build some software, then this will, you know, help us get an enterprise value multiple that'll be higher. But the reality is that you're not a software company and you still have the service business and this education business that are all going at the same time, only doing $300,000 a year. So let me give you the first rule that I have in terms of scaling a business. 1-1-1. One product, one avatar, one channel until you get a million bucks a year. All right? So that means you sell one thing to one person in one way until you get to a million. At a million, then usually I'm like, can we just do more of that thing? Sometimes we need to add a backend to the product and then kind of like the path starts to diverge, but up to there it's very similar. So I told you there was 3 problems. The first issue was the help everyone issue, right? And again, I don't think there's anything wrong with having this as a noble goal, but you're not gonna help anybody if you're broke or the business can't scale, right? You need resources. And so part of this comes from kind of an emotional decision-making process, right? So the attorney launched courses and software to kind of give back, not because of demand. There were some financial consequences from that because the software itself alone was losing him money. And so he's spending the majority of his time on these two things. And guess where you think most of his money was coming from here? His services. The main thing that people actually want to spend money on. Here's the reality of this, is that every hour you were spending on the unprofitable work was an hour not spent on scaling the services, which is the main cash cow of the business, right? And so this is a classic kind of martyr entrepreneur syndrome, right? Like it kills a ton of businesses. And the thing is they feel justified in this. They feel like they're, the savior, like they're doing the Lord's work, but you're not. You're fooling yourself because you're not willing to confront the harder issue, which is that you don't know how to focus, and you don't know how to say no. And it also means you don't know how to say no to customers, because you cannot sell everyone. Even if you give everything away for free, you'll have people who complain. So people complaining is gonna be a constant in business. You might as well have them complain and be profitable and help the people who are swimming towards you. So there's a, that's a little analogy that I've heard from the Coast Guard guys, is that if they're people who are drowning and they come in the helicopter, one of their rules is save the people swimming towards us. So if people aren't swimming towards them, they don't go after them, right? And so now whether or not that's true, who knows, but I do like the analogy, right? They just let 'em die. You never know, I don't know, maybe the storm's hard, they wanna show that, maybe it's just to show that people are actually moving, they're still alive, who knows? But either way, we as business owners should absolutely adopt that mentality. And this is actually pretty near and dear to me because when I met Leila, my wife, she was a trainer and she actually had this kind of this bleeding heart syndrome, if you will, right? And she was like, I just wanna build a company where people really love working and I just wanna help a lot of people. And I said, do you think it's possible that you'll be able to help more people if you make money? And she thought about it for a while and she was like, yeah, I think so. And I was like, so are you open to doing things differently? And so that was actually one of the first conversations we had on our first date. That led into all the things that we have today. And so I've always tended to be more of the quant hat of like, how can we make this profitable? What's the offer? What's the, you know, what's the monetization system? And Layla's always been so good at the people and the mission, right? And so that marriage, that yin and yang, you can't have just one or the other. You have to have both. And so if you're in this situation, there's nothing wrong with that. You just need to also pair the other side. And that's why I'm making this video. So the first problem was the help everybody issue. And so this is what we did to solve problem number 1. Now you can have multiple ways, multiple ways, skinny cat, right? Multiple ways that you can solve a problem, right? So the first thing is we killed the vampire, all right? Because right now they had something that was sucking up their cash flow and preventing them from scaling, right? Now he had this hope, maybe I'll sell the software down the line. I was like, dude, you're not gonna sell the software. It's not good enough. You don't have any money. The people that you have working for you are unfocused. It's not gonna work long term. No one's gonna give you this multiple. Like this is the thing. People think like, oh, I put some code together. I'm gonna have a 10x on my top line. If you think that, you're not gonna get it. People who are actually in software are going all in and it's still incredibly hard, alright? So the first thing is we cut the vampire. The second thing is we took the education business and I said, okay, well, what if we could use that to just drive more into the services? So we repositioned the very cheap education as free education and then that allows people to ascend themselves into the services. And so this gives you a very powerful front end that gets spread from word of mouth. You can also advertise it, but ultimately we just know that that's gonna drive more people into this community where he was teaching things, and then they're like, you know what, this sounds like a lot of work, I'd love to have you do it. And the third thing we did is that, okay, if we've killed the vampire, we repositioned the education to drive the services, what can we do with the services? Well, we want to double down. And so what does that actually mean? It means we had to reprice the services because their close rate was exceptionally high, again, the help everyone issue. They just wanted to say yes to every single person, but they didn't, they weren't able to get nearly as much profit as they probably should have. And so in his business, I saw an easy double or triple for the right avatar. And so what happens is, let's say you've got Avatar A, Avatar B, and Avatar C. And let's say that Avatar C is a C client, a B client, and A client. The thing is that an A client might be able to spend 10 times more than a C client. And so what most people do is they take A, B, and C, they average them and say, okay, well I'm gonna charge 2x rather than 10x. And they sacrifice their margin and ultimately how much they're able to scale. 'Cause believe it or not, there's still a ton of As. So just serve them first. The best customer you have. This is the ICP, the ideal customer profile. This is what we're doubling down on in the service. Let's find that one customer, that one avatar to sell our one product to on one channel. So that's how we solve problem number one. So problem number two is they had broken traffic. All right. So what does this mean? It means they had a leaky bucket, right? So the next problem was customer acquisition. And so when I asked him to walk me through how he was getting customers, he told me that he created content on YouTube. But when I asked him if that was where most of the leads were coming from, he said, actually, they go to his Instagram page from YouTube. YouTube. I was like, okay, so what are your calls to action in the video? I was like, do you send them from your videos to Instagram? He said, no, they actually just randomly find me on Instagram and then they DM us, uh, on Instagram and ask us questions. And that's ultimately how we get leads. I was like, okay, slow down. So the— you're getting all your leads from a place that you don't tell them where to go. And then when they get to that Instagram, which they find on accident, Your profile doesn't even solicit them to DM you. And he was like, yes. So I was like, great, well, let's solve that now. And I see this as, and you know, I make this as an extreme example, but I see this as a problem that a lot of business owners make, which is that like, they don't know where the leads are coming from. And so they continue to optimize for the wrong thing. And even if they do know where their leads are coming from, they continue to stick with what's comfortable or what they know instead of adjusting based on their customers, how they behave, right? And so, He was probably leaving $20,000, $30,000, $50,000 a month on the table just by not optimizing his traffic that he already was getting. Again, I'm not even saying like, let's go get more. Let's just like stop having it leak out of the bottom. So we did 5 things to solve this problem. So number 1 is we added CTAs at the 30% mark in his YouTube videos to go to Instagram and DM him. That was the first thing. Well, people are already doing it. Well, let's make it easier. Right? The second is that we put that CTA in more places. So we also put it in the description. We also put it in the pinned comment so that every video, even if he changes the description over time, which you can do on YouTube, by the way, people would still be able to see it and then ultimately DM him, which you can also just put the link to your Instagram so they can just click it. It's a trusted link, Instagram.com. They click it and then it opens up on their phone or it opens up with their computer so they can find out who you are. We also updated his YouTube profile to also have the same CTA. So B, C, and D are all the same concept. And then finally, here's the nasty one. We started proactively DMing people who were following him because he's doing way better on YouTube than he is on Instagram. And so most of those new follows, the people who are Instagramming him are people who are coming from his YouTube. So we just said, okay, well, if someone follows you, DM them and just say, hey, you here for free stuff or do you want help with your legal stuff? They say, I want help. Then boom, you have a lead. Real quick, guys, I have a special, special gift for you for being loyal listeners of the podcast. Layla and I spent probably an entire quarter putting together our scaling roadmap. It's breaking scaling into 10 stages and across all 8 functions of the business. So you've got marketing, you've got sales, you've got product, you got customer success, you've got IT, you've got recruiting, you got HR, you got finance. And we show the problems that emerge at every level of scale and how to graduate to the next level. It's all free and you can get it personalized to you. So it's about 30-ish pages for each of the stages. Once you answer the questions, it will tell you exactly where you're at and what you need to do to grow. It's about 14 hours of stuff, but it's narrowed down so that you only have to watch the part that's relevant to you, which will probably be about 90 minutes. And so if that's at all interesting, you can go to acquisition.com/roadmap, R-O-A-D map, roadmap. And so the key elements here, so this is obviously super tactical, but if you're, if I'm a business owner, I'm thinking this, maybe from you, I'm thinking, okay, what can I take from this? So, We took someone's existing behavior. We weren't like, oh, let's drive them through a funnel. People were already going to Instagram and DMing him, and he already knew how to convert from DMs. So like, let's not break that, let's lubricate it. The other piece that we did in terms of why this worked is that we were getting qualified leads up front. So we started filtering them in the DMers by saying free thing or help. And by doing that, it just got so much of the time wasted in the DMs off their plate. First, we went from helping everyone to focus, doubling down on the services, taking out the vampire, and using the education as a front end to generate leads. The second thing we did is we fixed the broken traffic issue. We added CTAs specific to how people were doing it. We put it in a bunch of places because the more places we put CTAs, the more actions we'll get if we call them to action more times. And then we got proactive in terms of filtering the leads. So the third problem that we, that we encountered was he had an hourly billing trap, right? He was billing the wrong way. And to be fair, I'm not like against hourly billing in general, but as a core business, it's usually not my preferred way of doing things. All right. And so they were charging $250 an hour and the average client value was $1,500. All right. So that's 6 hours on average that they were doing in services per customer. Now, for high leverage legal services, this, in my opinion, was leaving a lot on the table because people were actually coming to him not for hourly services. They were coming for a specific result. And so the issue here is that he actually was underpricing the result. And so trying to say, hey, we spent, you know, we're $250 an hour. Maybe that's a lot, maybe it's not a lot. No one has a really good idea of what an hourly rate should be unless they just look at other people's hourly rates, which makes you a commodity. Whereas if you say, hey, you want your XYZ estate planned, you want your business to get grown, you want your, his instance, like you want your record label, you want your music to be able to be sold to a record label, I'll get all of the IP protection in place in order for you to do that. Well now I can position the price of my thing in relation to the dream outcome that they want, which is to become a music star and ultimately leverage that to become become famous and, you know, save the world with their music. All right, and so this underpricing trap is especially common with service providers who price based on time, based on outcome. All right, you want to be value-based, not kind of feature-based in terms of your pricing. So if that's a problem, how do we solve it? So we ditched the hourly billing and we went with $5,800 upfront. Now that sounds— you're like, holy cow, that's way bigger. Now remember, he had plenty of sales conversations that he's able to generate, and he had a pretty good close rate. And so if you have a really good close rate or an exceptionally good close rate, then I hear that and think, oh, we're underpriced. And so on top of this $5,800, he also— we also tagged in a little commission that he gets if they close a deal. And some of these deals are worth several hundred thousand dollars, so it actually adds up, sometimes millions of dollars, to be pretty material for him. But also, I like having— adding that piece in, because when you talk about flat fee plus performance, guess what you think the prospect is thinking? Oh, this is probably going to happen. So actually, literally how we present our price will dictate the belief that a prospect is going to have based on what they will believe our incentive structure is. And so let me, let me show you a different incentive structure to drive this point home. If he just said, hey, I'm 100% commission, then people would be like, holy cow, that's an amazing offer. And a lot of people do that because it is such an amazing offer. But how can we dial this back to find the sweet spot? Because plenty of these musicians might not have been good, and some of the clients that you might work with might not actually be successful. So we have to balance our risk here. But still having an element of performance still drives that conviction. Now, what we did that I think is kind of clever, and this is my preferred way of doing things if I ever have the option, is having an A/B offer. And so you can A/B anything. Hint, it's coming out of my next book. I'm talking about this. But whenever you have an offer, if you say, would you like chocolate or vanilla? Do you want to start Monday or Tuesday? Do you want to have a male or female masseuse? You could always A/B your offer. All right. And so the B offer that we made here was $25,000 with zero commission. Now, what is this offer? This offer is an anchor because now it makes the $5,800 offer seem like a steal. So that was the main thing we did to break him out of the hourly billing. So I'm gonna give you just quick hitters in terms of how you can think through this for whatever it is that you're selling. So number 1 is align the incentive. The lawyer now benefits when the client succeeds. So great, that makes sense. 2, big price anchor. $25K makes the $5,800 super reasonable. 3, it shifts the conversation from cost of time to value of outcome. 4, it naturally qualifies prospects. Only serious musicians are gonna proceed, which is who he wants to sell to anyways, right? And then 5th, it increased perceived value. Premium pricing signals premium service. The result of this is that now the customers are gonna be worth 3 to 5 times more, not including the commission. So if he did nothing else, sells the same amount of people at this price point, he triples to quintuples the business. Now you might be like, well, he might not sell as many. Well, guess what we did earlier? We've got him a whole bunch more traffic and we got way more people to opt in and we already triaged to the best clients. See how this is all stacking together? And you might be like, hey, if you only did that, you'd win. And that's true, but we did one more thing. So the fourth problem that came up is like, okay, well this is gonna be the new process, but he didn't have a sales process. Now he was good at selling, but he didn't have any kind of process in place to make it a sales motion that is repeatable. If you don't have a repeatable sales process, you're gonna have volatility in the business. And so if your conversions right now are hit or miss and you're not sure what's going on, it's usually 'cause you're missing a sales flow. All right? And so the business is generating interest, but it didn't have a structured way to convert it. And so everything was happening ad hoc. So some leads came through Instagram, others booked random calls through Calendly. Um, and there was really no clarity on on what was being pitched to whom and when or how, right? So it's purely reactive. And to be fair, I'm not hating on him. Like he's doing a great job and it's small business, we're starting out, that's how it works, right? But if you're in the situation, you have a huge amount of opportunity here by just cleaning this stuff up. So the founder was actually treating every call like a legal consultation. And so he was actually charging the $250 for the call upfront because it was an hour of his time. Which for me, I'm like, oh my God, we're missing out on so many opportunities because we haven't positioned this in any kind of valuable way. It's just like, hey, pay for an hour of my And then I'll sell you more hours of my time. Not a fan. Instead, I'd rather qualify prospects up front, have them watch a structured sales presentation, make sure that they are qualified for the product or service that we're trying to sell, then sell that thing all up front and then provide the service. And so what this does is this actually matches to what a high-intent lead, how they actually wanna buy. They wanna know that you're legit. They wanna know that you have a process. This isn't your first rodeo. And you demonstrate that even before you do your services. How someone is sold will dictate how legit they think you are. Here's what we implement inside the business to fix the sales motion. So number 1 is we put a VSL, that was 5-7 minutes. If you don't know what that is, it's a video sales letter. All it is is basically explaining who, what, where, when, why, this is what we do, and then frequently asked questions. You don't need to overcomplicate this. A lot of people think that there's some big black box of magic that like only these super secret ninja, you know, marketers understand. You just answer the questions in the language that they present to you on sales calls. So the normal Every question someone asks on calls about your products and your services, you take all those questions, you say it back to them in the video, and say, "A lot of people ask this question, this is how we answer it. A lot of people ask this question, this is how we answer it." That's it, that's all we're doing. Again, it doesn't need to be super long, but it will help qualify customers, and you will see a dramatic lift if you only do this. The second thing we did is we implement BANT, and I do this in basically every single business that I advise, which is, if you don't know what BANT is, it's budget, Authority, need, and timing. So this is actually originally from IBM in like the '60s, and it has stuck. So do they have the money? Can they make the decision? Do they need this solution for them right now? And the right now is the timing piece. Are they willing to move forward today? And in terms of asking the question, we could just ask questions like, can you afford $5,800 in order to get your business, you know, incorporated, your IP protected? Is there anyone else who's involved in this decision? That's authority. What happens if you don't solve this need? When would you like to get this done? Or when would you like to start? And you give them a dropdown like today, tomorrow, or, you know, a few weeks from now. You want to sell, by the way, to people who say today or tomorrow. See, the next thing we did is that we needed to fix this from a consultation to a sales call. All right. Which means that we actually have to have a script. We have to clarify whether they're— label them with a problem over their past experiences, understand the gap between where they are, where they want to go. We aggregate the pain, make sure it's very clear what happens if they don't do it. And I'll give you the simplest structure for this, which is plus plus, minus, minus, plus, minus, minus, plus. All right. So what you show here is you say, hey, if you work with me, you get more good stuff. And if you work with me, you get less bad stuff. Cool. Now, if you don't work with me, you're going to get more bad stuff. And if you don't work with me, you're going to get less good stuff. And so that gives you 4 angles of persuasion that you can do in the sales consultation when you get to the S of the closer framework. So clarify, see, label them with a problem, O, overview the past experience, S, sell them the vacation. Here we go. You can also use the value equation there. E, explain away their concerns. Part of that's going to be covered in the VSL. If they come back up, you overcome them the same way and then reinforce the decision, which is once they ultimately buy. All right. The next thing we do, which I'm not always a big fan of, but because he had so many unqualified customers, is having a downsell that was basically hands-off, that we took the education and just said, hey, you can buy this thing for $2,000 to $3,000 rather than saying buy it for, you know, $10 a month. Right. It's a different, a different way of monetizing the do-it-yourself path. But I also like this as a downsell because you're like, they're like, man, for only 50, you know, for if I'm $3K for this and I just pay an extra $2,800 and I can have them do it and make sure it's right, I'd rather have them do it. So we actually have anchors on both sides. So the downsell's not that much less and the anchor's way higher. So it makes the best path or the best option the $5,800, which is the core offer. And then finally, if the metrics of the funnel worked out the way I think they would based on how much he was losing, I think he would be able to scale up to 3 closers with his existing traffic, and this would take him to something like 3 to 10, you know, 3 to 7 or 8 sales a day. And we're talking about $18,000 to $50,000 a day in potential. To be clear, I'm not promising that's going to happen. I'm not saying that that is the end result here, but like that was the potential in the business as it currently stood. And so when we put these pieces in place for the sales process, it creates a predictable system rather than relying on ad hoc or random chance. And the prequalification process make sure that time is spent with the valuable prospects, the good people who've got the money to spend, the need to get solved, the authority to make the decision, they want to do it now. Right? And the VSL sets the expectations, and a structured approach in the conversation allows for continuous improvement so that you can actually look at the sales, you can listen to the recordings, you can ask stuff of the VSL, you can ask stuff of the script, and you keep the optimization cycle going. And this is what makes sales repeatable, measurable, and ultimately scalable to a team rather than it just being a vague, we talk to people sometimes approach, which is what a lot of business owners do because You know, it's worked for you so far. The thing is, is sometimes what's worked for you so far is not going to get you where you want to go. All right. Now, instead of this business, let's look at what happens after we install these 3 things. Now, I can't— I'm not a genie. I can't look into the future. I don't know what's going to happen, but I think the likelihood that he makes more is high. All right. And so instead of losing $100,000 a year, which is what he came in at, right, and being 6 months away from going out of business immediately because he cut the negative 100, we're now at break even. So that one I feel pretty confident about. Like if we stop doing the thing that's losing us money, we will stop losing money. Now the next thing is, are we going to get the 3 to 5x that we immediately get from the price increase? Are we going to get the increase in traffic that we have by sorting people with DMs and getting way more opportunities? Are we going to get an increase in conversion because we have a sales process in play? Probably all of these things, or maybe not, but who knows? But the thing is, is that I can certainly say that the chances that this business, after these 4 changes get made, makes money goes way up. So the TL;DR is this: keep the main thing the main thing. And cut what's not working. And that feels hard in the moment, but sometimes you need somebody from the outside to be like, this clearly is losing you money. You're never going to sell this thing. Focus your attention where you get the best returns. Second point, traffic is useless without a clear direction. So make sure you're pointing everyone. I like what I call one front door. So I want lots of different, you know, lines in the water, but I want one boat for them to get into, right? I don't want 6 different boats for me to catch fish on. I want one boat with lots of lines. 3, price based on value, not time. If you can, at the end of the day, people don't want your time. They don't like, if you could say, hey, I could do this thing in 5 minutes, why would we bill on time? We're actually, we're actually have a disincentive to, to do it faster, which is not aligned with our customer. So if we, and this is part of the sales pitch, right? If you say, hey, some people bill hourly, we don't do that. We just bill on outcome. And that incentivizes both of us to get this done as fast as possible. Would you rather this take longer or shorter? I want this to take shorter. Great. That's why we bill this way. And we have a commission because we're also incentivized like you to get a deal done, which is ultimately why you wanna do this. And number 4, you can't scale what you can't repeat. All right. So we have to have repeatable process like this is how this conversation goes so that somebody else can have this conversation, which if he follows these steps, is likely to occur.